ACCTG 221 Chap.10 Balanced Scorecard and Performance Measures
Balanced Scorecard and Performance Measures
A balanced scorecard translates strategy into linked objectives and measures across financial, customer, internal-process, and learning and growth perspectives. A useful strategy map shows cause-and-effect hypotheses from capabilities and processes to customer outcomes and financial results. Lead indicators signal actions expected to create later performance; lag indicators report outcomes already achieved.
Measures must have clear ownership, data definitions and safeguards against gaming.
What this chapter covers
- 01
Four balanced-scorecard perspectives
- 02
Strategy maps and causal hypotheses
- 03
Lead and lag indicators
- 04
Financial and non-financial measures
- 05
Responsibility and controllability
- 06
Gaming, data quality and review
Worked example · free
Northern Repairs: a strategy-linked scorecard
- +2Learning and growth: improve technician diagnostic capability; measure certified training completion and skills checks.
- +2Internal process: reduce first-visit resolution time while maintaining quality; measure first-time fix rate and repeat visits.
- +2Customer: improve reliable service experience; measure retention or verified satisfaction after repair.
- +2Financial: improve contribution from retained customers; measure customer contribution and explain the chain from capability to process, customer and finance.
Key terms
- Balanced scorecard
- A linked set of measures translating strategy into action.
- Strategy map
- A diagram of hypothesised causal links among objectives.
- Lead indicator
- A measure expected to predict or drive later outcomes.
- Lag indicator
- A measure reporting an outcome after actions occur.
- Controllability
- The extent to which a manager can influence a measure.
Balanced Scorecard and Performance Measures FAQ
Why are financial measures not enough?
Financial results are important but often lag the operational causes of performance. Process, customer and capability measures can signal whether the strategy is being executed before the final financial outcome appears.
What makes a measure well designed?
A useful measure has a clear objective, definition, owner, data source, frequency and target. It also has a balancing measure or review that reduces incentives to game one dimension.
Does correlation prove the strategy map?
No. A strategy map states hypotheses about how actions create outcomes. Managers should test the timing and strength of those links and revise the map when evidence does not support them.
Exam move
Begin with the strategy, not a convenient list of available metrics. Write one objective per perspective and use arrows to state why one objective should influence the next. Distinguish lead indicators from lag outcomes and specify the expected time delay. Give every measure a precise numerator, denominator, owner and data source.
Add a balancing measure where a narrow target could create gaming; speed may need quality, cost reduction may need safety, and sales growth may need margin. Review whether managers can influence the measure and separate accountability from factors outside their control. In a written answer, explain the causal chain and one behavioural risk. That turns four isolated metrics into a management system.
Build a strategy map before selecting measures. Start with the organisation's stated value proposition, then choose the capability and process objectives expected to deliver it. Use arrows as testable hypotheses, not decoration, and write the expected delay between a lead action and lag outcome. For each objective, specify a measure definition, formula where applicable, data source, frequency, owner and target.
Distinguish an activity count from a quality result; training hours show effort, while demonstrated capability indicates whether learning occurred. Pair speed with quality, sales with margin and cost reduction with safety or service so a narrow target cannot dominate the intended strategy. Consider controllability when assigning responsibility, but do not remove measures simply because external factors also influence them.
Use trends, benchmarks and connected indicators rather than judging one period in isolation. In revision, critique a deliberately weak scorecard containing too many metrics, missing causal links and ambiguous definitions. Replace vanity measures with indicators that inform action. Explain how gaming could occur and design a review or balancing measure that makes the distortion visible.
Finish by stating how managers would test the strategy map over time and revise it when the predicted relationship between capability, process, customer and financial outcomes fails to appear. For each proposed target, ask how a local manager could improve the number without improving the strategy. Add a countermeasure or review that exposes that behaviour, and state who should review it.
This adversarial test makes scorecard design more robust and links performance measurement to ethics, controllability and organisational learning. Limit the final scorecard to measures that support a decision, and explain how each result would change management attention or resource allocation.
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